ADDRESS 


OF 

Hon.  James  V.  Barry 

Insurance  Commissioner 
of  Michigan 

Before  the  Business  Men’s 
Conference 

AT 

NASHVILLE,  TENNESSEE 
January  30,  1909 


\ 


Digitized  by  the  Internet  Archive 
in  2016 


https://archive.org/details/addressbeforebusOObarr 


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VC^\ 


Address  of  Hon.  James  V.  Barry,  Insur- 
ance Commissioner  of  Michigan, 
Before  the  Business  Men’s  Confer- 
ence at  Nashville,  Tennessee,  Jan- 
uary 30,  1909. 


I am  constrained  to  congratulate  you  upon  the  fact  that 
you  are  citizens  of  the  first  state  to  give  the  great  question  of 
fire  waste  specific  treatment  in  a manner  designed  to  focus 
upon  it  the  attention  of  all  the  citizens  of  the  commonwealth 
and  awaken  them  to  a sense  of  their  responsibility  and  their 
duty  to  aid  by  every  means  in  their  power  in  the  work  of 
lessening  the  great  waste  which  is  daily  depleting  the  re- 
I sources  of  the  state  and  nation 

i Tennessee  is  the  pioneer  in  this  state  wide  movement  and 
it  is  to  be  hoped  that  its  example  will  speedily  be  emulated 
to  the  end  that  all  the  people  of  all  the  states  may,  at  an 
' early  day,  join  enthusiastically  in  a determined  effort  to  ma- 
terially reduce  the  enormous  fire  waste  which  in  this  country 
now  averages  a quarter  of  a billion  dollars  annually. 


Timely  Meeting 


Your  coming  together  today  is  timely.  Just  now,  when 
the  Chief  Executive  of  the  Nation  is  calling  upon  the  people 
to  carefully  husband  and  conserve  the  resources  of  the 
country,  it  is  indeed  fitting  that  you,  representative  citizens 
of  a great  state,  should  gather  together  to  devise  ways  and 
means  of  guarding  a large  portion  of  the  material  wealth  of 
the  state  from  destruction  by  fire. 

Every  fire,  however  small,  wipes  out  of  existence  more 
or  less  of  our  natural  resources,  to  which  the  labor  and  in- 
genuity of  man  has  given  an  added  value,  the  loss  thus 
being  greater  than  if  the  raw  product  alone  had  been  de- 
stroyed. It  is  well  to  emphasize  the  fact  that  property  de- 


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stroyed  by  fire  is  gone  forever.  While  it  may  to  some  extent 
be  replaced,  it  can  never  be  restored. 

An  impressive  demonstration  of  what  the  duty  of  the 
people  of  this  country  is  in  respect  to  the  great  problem 
which  engages  your  attention  today  and  how  they  can  con- 
tribute to  its  effective  and  successful  solution,  is  to  be 
found  in  the  few  figures  which  constitute  such  an  important 
feature  of  the  call  for  this  convention  which  was  issued  over 
the  signature  of  the  distinguished  insurance  commissioner 
of  this  state.  This  brief  statistical  statement  shows  that 
whereas  the  average  annual  per  capita  fire  loss  of  six  of  the 
most  important  countries  of  continental  Europe  was  but  33 
cents,  the  average  per  capita  loss  in  the  United  States,  end- 
ing December  31,  1907,  was  $3.02. 

This  vast  difference  in  favor  of  the  countries  across  the 
sea  is  not  the  result  of  chance  or  magic.  It  is  due  simply 
and  solely  to  an  appreciation  on  the  part  of  the  people  of 
those  countries  of  their  obligation  to  themselves,  their  neigh- 
bors, their  country  and  to  posterity  to  preserve  that  which 
exists  so  that  they  and  those  who  come  after  them  may  enjoy 
and  be  benefited  by  its  use,  and  to  the  enactment  and  en- 
forcement, as  the  result  of  such  appreciation,  of  laws  and 
ordinances  designed  to  protect  and  preserve  it. 

We  of  the  United  States  can  do  as  well  in  this  respect  if 
we  will  but  give  attention  to  the  matter  and  having  once 
impressed  ourselves  with  the  seriousness  of  existing  condi- 
tions, set  about  to  correct  them.  It  is  doubtless  true  that 
allowance  should  be  made  for  the  rapid  development  of  this 
country  and  the  greater  energy  and  activity  of  our  people, 
but,  after  making  due  allowance  for  all  this,  it  is  still  a 
national  shame  that  is  little  short  of  criminal  that  we  should 
permit  such  vast  values  to  be  annually  destroyed  through 
carelessness,  negligence  and  crime,  without  rising  in  all  our 
might  as  states  and  as  a nation  to  put  a stop  to  it. 

A comprehensive  idea  of  the  obligation  of  the  state  in  this 
respect  can  be  gained  by  even  the  casual  study  or  considera- 
tion of  the  methods  pursued  in  those  countries  which  have 
an  enviable  loss  record.  We  find  that  there  every  phase  of 


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the  question  is  given  careful  and  painstaking  attention  by 
the  law-making  powers  and  that  carelessness,  negligence  and 
crime  in  connection  with  fires  is  punished  in  a manner  that 
most  effectively  discourages  indulgence  in  any  of  those 
fruitful  causes  of  fire  waste. 

Broadly  speaking,  practically  nothing  is  done  officially  in 
this  country  to  prevent  the  destruction  of  property  by  fire. 
We  have,  to  be  sure,  in  the  cities  throughout  the  various 
states,  expensive  fire  fighting  apparatus  and  more  or  less 
efficient  fire  departments.  But  all  this  enormous  expenditure 
is  designed  to  control  fires  after  they  have  once  started.  In 
this  connection  an  ounce  of  prevention  would  be  worth  far 
more  than  the  pound  of  cure  provided,  for  it  would  not  only 
save  great  values  from  destruction  and  preserve  them  for  the 
use  and  enjoyment  of  the  people,  but  it  would  also  render 
unnecessary  the  expenditure  of  much  of  the  great  sums  that 
are  tied  up  in  fire  fighting  facilities.  Our  laws  and  ordi- 
nances dealing  with  building  regulations  and  kindred  mat- 
ters are  more  honored  in  the  breach  than  in  the  observance. 

To  Prevent  Fires 

To  my  mind,  one  of  the  great  obligations  of  the  state  is  to 
exercise  its  authority  through  its  legislature  and  incident- 
ally through  its  various  municipalities  to  set  in  motion  every 
agency  that  will  contribute  in  any  appreciable  degree  to  the 
prevention  of  fire. 

This  authority  should  extend  to  the  enactment  of  laws 
governing  the  construction  of  buildings,  the  installation  of 
heating  and  lighting  plants,  the  use  of  combustibles  of  all 
kinds,  the  storing  of  explosives  or  readily  combustible  ma- 
terials, the  protection  of  forests  and  the  safeguarding  of  ex- 
posures. It  should  also  provide  laws  and  ordinances  that 
will  penalize  carelessness  and  negligence  and  bring  swift  and 
severe  punishment  to  the  criminal. 

Under  existing  conditions,  as  every  one  knows,  the  man 
who  carelessly  or  negligently  permits  his  property  to  be  de- 
stroyed by  fire  reaps  his  reward  by  being  permitted  to  collect 
whatever  insurance  he  may  have  been  thoughtful  enough  to 


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provide,  while  his  innocent  and  possibly  uninsured  neigh- 
bor who  loses  his  all  through  such  carelessness  or  neglect  is 
permitted  to  shoulder  his  loss  with  what  grace  he  may  be 
able  to  command  and  to  humbly  thank  the  person  responsible 
for  his  misery  that  his  life  was  not  included  in  the  sacrifice 
demanded  of  him. 

The  state  can  do  much  to  control  the  situation  by  creating 
and  maintaining  an  efficient  department  for  the  investigation 
of  all  fires  and  having  discovered  the  causes  thereof  to  pre- 
vent, through  publicity,  punishment  or  correction  of  condi- 
tions, other  fires  from  like  causes. 

Some  states  have  fire  marshal  departments  which  are  more 
of  a menace  than  a benefit.  Unless  such  an  office  is  admin- 
istered vigorously,  intelligently  and  without  fear  or  favor,  it 
might  far  better  be  abolished,  for  failure  to  thoroughly  in- 
vestigate every  fire  and  deal  with  the  cause  thereof  in  a 
manner  that  will  effectively  prevent  a repetition  is  simply  a 
pretense  and  a sham  wholly  unworthy  of  any  state. 

The  state  can  further  fulfill  its  obligations  to  reduce  fire 
waste  to  the  minimum  by  refraining  from  encouraging  such 
of  its  citizens  as  may  not  be  possessed  of  a healthy  sense  of 
the  proprieties,  to  dispose  of  their  property  to  the  fire  in- 
surance companies  at  a profit.  The  true  function  of  fire 
insurance  is  to  indemnify  the  insured  for  a loss  sustained. 
Worse  than  violence  is  done  this  principle  when,  through 
enactment  or  otherwise,  the  insured  is  permitted  to  profit 
through  the  destruction  of  his  property  by  fire.  Such  enact- 
ments not  only  make  it  possible  for  a person  to  secure,  with 
the  sanction  and  aid  of  the  state,  that  to  which  he  is  not  en- 
titled, but  it  also  encourages  him  to  jeopardize  the  property 
and  lives  of  his  neighbors,  a condition  which,  in  my  judg- 
ment, no  state  should  tolerate,  let  alone,  create. 

Premium  on  Fires 

No  state  desirous  of  lessening  the  destruction  of  property 
by  fire  should  place  or  permit  to  remain  on  its  statute  books 
a law  which  puts  a premium  on  the  destruction  of  property. 
Such  a law  would  be  bad  enough  if  it  were  certain  that  a 


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fire  would  be  confined  to  the  property  on  which  it  originates, 
but  in  the  light  of  the  possibility,  not  to  say  the  probability, 
of  its  spread  to  the  property  of  others  and  the  consequent 
destruction  of  human  life,  it  becomes  an  enormity  that  should 
not  be  permitted  to  exist. 

Eliminating  all  considerations  of  the  tendency  to  encour- 
age crime  with  its  attendant  destruction  of  life  and  property 
which  such  a law  embodies,  and  viewing  the  matter  from  a 
cold  commercial  standpoint  only,  it  seems  to  me  that  there 
can  be  but  one  conclusion  as  to  the  value  of  an  enactment 
of  this  nature.  The  experience  of  every  state  having  such  a 
law,  so  far  as  I have  been  able  to  learn,  is  that  premium  rates 
have  advanced  in  its  wake.  This  is  the  logic  of  the  situation. 
Human  nature  is  such  that  no  state  can,  by  legislation,  make 
it  an  object  for  its  citizens  to  permit  their  insured  property 
to  be  destroyed  by  fire  and  escape  the  development  of  prop- 
erty owners  who  will  take  advantage  of  the  opportunity  af- 
forded to  make  their  property  earn  them  a profit.  This 
result  will  follow  as  surely  as  night  follows  day.  Then,  too, 
with  the  opportunity  to  collect  in  the  name  of  the  law  greater 
values  than  those  destroyed  by  fire,  what  incentive  is  there 
for  the  property  owner  to  exercise  watchfulness  and  care 
in  guarding  his  property  from  fire?  Such  enactments  in- 
volve the  state  in  a two-fold  loss.  They  result  in  the  greater 
destruction  of  property  which  should  be  preserved  in  the 
interest  of  the  state  and  in  increased  exactions  from  its  peo- 
ple in  the  shape  of  higher  premium  rates.  From  every 
standpoint  the  valued  policy  law,  so-called,  is,  in  my  judg- 
ment, a delusion,  a snare  and  a menace  to  those  in  whose 
fancied  interest  it  is  enacted.  Every  consideration  of  justice 
and  economy  condemns  it. 

I am  aware  that  it  is  contended  by  the  advocates  of  this 
law  that  the  insured  should  receive  all  the  insurance  he  pays 
for,  but  it  should  be  remembered  that  it  takes  two  to  make  a 
contract  and  each  party  should  be  held  to  strict  honesty  in 
its  execution.  It  is  a monstrous  doctrine  that  a person  who 
deliberately  misrepresents  the  value  of  his  property  and 
thereby  succeeds  in  over  insuring  it  should  be  permitted  to 


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materially  profit  by  his  wrongdoing  in  this  respect,  even 
though  the  transaction  be  not  further  characterized  by  delib- 
erate crime  in  connection  with  the  destruction  of  the  prop- 
erty. 

Practical  Question 

This  is  a practical  question  which  should  be  treated  by 
legislatures  from  a practical  standpoint.  It  is  patent  that 
from  the  very  nature  of  the  business  and  the  necessary  hand- 
ling of  it  through  the  agency  system,  it  is  impossible  for 
companies  to  be  everywhere  represented  by  experts  in  values 
of  every  name  and  nature.  If  a company  should  be  fortu- 
nate enough  to  be  represented  in  this  city  by  a man  thor- 
oughly familiar  with  building  values,  it  would  hardly  follow 
that  such  agent  would  be  capable  of  accurately  estimating 
the  value  of  stocks  of  goods  and  thus  protect  his  company 
from  over  insuring  the  various  classes  of  property  on  which 
insurance  is  offered. 

The  valued  policy  law  places  a premium  on  dishonesty 
and  disaster.  A legislature  should  be  the  last  to  lead  the 
citizens  of  a state  into  temptation. 

But  ignoring  the  moral  question  involved,  it  is  worse  than 
folly,  it  seems  to  me,  for  a state  to  encourage  a system 
which  experience  has  conclusively  shown  results  in  the  in- 
creased destruction  of  property  which  should,  in  the  inter- 
ests of  the  people,  be  preserved,  and  the  increased  cost  of 
insurance. 

Rather  than  make  it  possible  for  its  citizens  to  profit  by 
the  destruction  of  their  property  by  fire,  it  were  far  better 
for  the  state,  through  legislative  enactment,  to  require  such 
citizens  to  carry  a percentage  of  their  own  risk.  This  would 
insure  the  exercise  of  greater  care  and  precaution  against 
fire,  and  necessarily  tend  to  materially  reduce  the  destruction 
of  property.  Insurance  can  mitigate  the  loss  of  the  individ- 
ual, but  it  cannot  reutrn  to  the  nation’s  wealth  what  fire  has 
destroyed 

The  state  should  address  itself  to  the  treatment  of  this 
great  question  of  fire  waste  just  as  it  would  to  any  other 


8 


menace  which  threatens  the  people.  It  should  gladly  co- 
operate with  every  agency  which  in  any  wise  seeks  to  prevent 
fires  and  decrease  the  alarming  proportions  of  the  country's 
annual  ash  heap.  It  should  be  as  active  in  its  efforts  to 
stamp  out  this  great  agency  of  destruction  of  the  lives  and 
property  of  the  people  as  it  is  in  preventing  the  spread  of  an 
epidemic  of  disease  which  demands  its  toll  of  human  lives 
alone. 

In  whatever  effort  the  state  may  make,  through  legisla- 
tion or  otherwise,  to  control  this  great  and  costly  evil,  it 
should  recognize  in  the  fire  insurance  companies  which 
supply  the  commodity  so  absolutely  essential  to  the  business 
of  every  community  its  most  potent  friends  and  allies.  It 
should  recognize  this  fact  in  dealing  with  its  own  citizens, 
for  it  is  they  in  the  last  analysis  who  pay  all  the  freight. 
This  is  a fact  which  is  too  often  lost  sight  of  by  legislators 
who  fancy  that  they  are  treating  with  some  far  away  hostile 
interest  which  can  be  handicapped  and  burdened  in  its 
operations  to  the  benefit  rather  than  to  the  positive  detri- 
ment of  the  people  of  their  own  state.  Legislators  should 
understand  that  whenever  they  unduly  burden  or  unjustly 
harass  a company  they  are  simply  placing  a burden  upon 
those  of  their  own  constituents  who  are  obliged  to  purchase 
fire  insurance.  There  is  no  one  else  to  carry  the  burden  or 
pay  the  tribute. 

Instead  of  being  handicapped  by  unwise  legislation,  these 
companies  should  be  encouraged  in  every  legitimate  under- 
taking. In  all  that  they  do  to  lessen  the  hazard,  improve 
conditions  and  educate  the  public  to  an  appreciation  of  its 
duty  to  do  everything  in  its  power  to  reduce  the  enormous 
fire  waste  which  now  constitutes  such  a drain  on  the  re- 
sources of  the  country,  they  should  have  the  encourage- 
ment and  enthusiastic  co-operation  of  all  right  minded  citi- 
zens and  of  all  law  making  bodies,  national,  state  and  mu- 
nicipal. 

Fire  insurance  companies,  through  their  perhaps  selfish 
efforts  to  decrease  the  fire  waste,  have  been  the  most  potent 
factor  in  such  improvements  as  have  been  made  by  methods 


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of  construction  and  fire  protection,  and  new  efforts  in  this 
direction  are  constantly  being  put  forth  by  them.  In  this 
work  they  are  entitled  to  and  should  receive  the  heartiest 
co-operation  of  the  public,  lawmakers  and  supervising  offi- 
cials. Every  accomplishment  in  this  line  will  inevitably  re- 
duce the  cost  of  the  indemnity  they  have  for  sale,  to  the 
mutual  benefit  of  the  companies  and  the  insuring  public. 
In  so  far  as  co-operation  on  the  part  of  the  companies  tends 
to  enable  them  to  better  instruct  the  insuring  public  as  to 
existing  dangers  and  the  best  methods  of  reducing  them  to 
the  minimum  and  to  minimize  the  expense  of  making  ne- 
cessary inspections,  surveys,  experiments,  etc.,  which  are 
so  essential  to  the  proper  and  economical  conduct  of  the 
business,  the  state  should  interpose  no  obstacle,  but  should 
give  the  work  its  full  and  complete  sanction.  Every  dollar 
well  spent  in  this  connection  means  a saving  to  the  state  of 
its  material  resources  and  a further  saving  to  every  citizen 
of  the  state  who  is  a purchaser  of  fire  insurance  contracts.  It 
is  far  less  expensive  from  the  standpoint  of  the  policy-holder 
to  have  all  the  companies  contribute  to  the  expense  of  con- 
ducting the  various  branches  of  this  work  than  it  is  to 
compel,  through  unwise  legislation,  each  company  to  carry 
it  on  at  its  own  expense,  thus  making  it  not  only  a greater 
financial  burden,  but  at  the  same  time  less  perfect  in  its  re- 
sults, because  of  each  company  being  dependent  on  its  own 
experience  rather  than  on  the  combined  experience  of  all 
companies  in  the  field.  No  careful,  intelligent  business  man 
will  purchase  the  contract  of  any  company  which  does  not 
give  careful  attention  to  these  essential  details  of  the  busi- 
ness, for  such  a company  is  simply  plunging  about  in  the 
underwriting  sea  without  chart  or  compass  and  is  sure  to 
be,  sooner  or  later,  stranded  on  the  rocks  which  constantly 
menace  it. 


Should  Foster  Co-Operation 

In  order  to  foster  and  encourage  co-operation  for  the 
legitimate  purposes  outlined  above,  it  is  not  necessary  for 
the  state  to  countenance  combinations  in  restraint  of  trade 


10 


or  any  compact  which  has  for  its  purpose  the  fixing  or 
maintenance  of  rates  of  premium.  In  what  I have  said  I 
have  had  in  mind  only  such  legitimate  undertakings  of  the 
company  as  can  best  be  conducted  through  united  action 
and  which  tend,  through  the  better  classification,  construc- 
tion, inspection  and  improvement  of  risks  and  the  deter- 
mination by  experts  of  the  proper  charges  to  be  made  for 
defects  and  the  proper  credits  to  be  allowed  for  improve- 
ments to  reduce  the  fire  waste  and  consequently  the  cost 
of  insurance.  It  is  inevitable  that  the  rates  of  premium 
will  decrease  with  the  decrease  in  the  number  and  extent  of 
fires  and  the  expense  of  conducting  the  business.  The 
gainers  from  this  will  be  that  portion  of  the  public  which 
purchases  fire  insurance,  just  as  that  portion  is  called  upon 
to  pay  the  cost  of  every  burden  and  unwise  exaction  placed 
upon  the  business. 

The  paramount  obligation  of  the  state  in  connection  with 
fire  insurance  is  to  see  to  it  that  the  public  is  supplied  with 
sound  indemnity.  It  is  far  more  essential  that  the  state 
exercise  its  authority  to  the  end  that  the  companies  author- 
ized to  transact  business  within  its  borders  are  possessed 
at  all  times  of  sufficient  funds  to  enable  them  to  pay  their 
losses,  whether  these  losses  are  normal  or  those  precipitated 
by  a great  conflagration,  than  to  undertake,  through  a mis- 
taken sense  of  its  obligation  to  its  citizens,  to  force  a tem- 
porary reduction  of  rates  at  the  expense  of  the  solvency 
of  these  companies.  The  company  that  fails  to  collect  an 
adequate  rate  is  a far  greater  menace  to  the  public  than  the 
one  which  shows,  what  to  the  unthinking  mind,  is  an  ab- 
normal surplus.  The  one  proves  to  be  a broken  reed  in 
time  of  stress,  while  the  other  is  ever  a staff  which  furnishes 
unfailing  support  in  time  of  greatest  need. 

This  is  a principle  thoroughly  established  and  enforced  by 
law  in  life  insurance  where  the  valuation  statutes  fix  a 
minimum  rate  below  which  no  company  can  go  and  main- 
tain the  required  reserve.  The  state  and  the  law  should  as 
thoroughly  safeguard  citizens  who  purchase  fire  insurance. 


n 


